ZHENG RUOTING v. CHAN HOI TING

HCMP 1764/2019

[2020] HKCFI 2360

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1764 OF 2019

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D E C I S I O N

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This Application

1.  The Plaintiff (“Purchaser”) applies by way of an Originating Summons dated 11 October 2019 (“OS”) for a declaration that, inter alia, the Defendant (“Vendor”) has not shown good title to the property known as Flat E, 50^th Floor, Tower M6, Yoho Town, No. 9 Yuen Lung Street, Yuen Long, New Territories, Hong Kong (“Property”).

The Background

2.  The background can be summarized as follows.

3.  According to the Land Register kept at the Land Registry:

(1)  City Success Limited (“CSL”) being the grantee of the land sold the Property to a Wen Xiaoling (“1^st Owner”) under a sale and purchase agreement dated 24 March 2010 and registered on 12 April 2020 (“1^st SPA”).

(2)  CSL later assigned the Property to the 1^st Owner by an assignment dated 11 November 2010 and registered on 30 November 2010 (“1^st Assignment”).

(3)  The 1^st Owner made a statutory declaration dated 9 July 2015 and registered on 11 August 2015 (“Declaration”) declaring that she had lost, inter alia, the original copies of the 1^st SPA and the 1^st Assignment.

(4)  The 1^st Owner sold the Property to the Vendor under an agreement for sale and purchase dated 25 August 2015 and registered on 8 September 2015 (“2^nd SPA”).

(5)  The 1^st Owner assigned the Property to the Vendor by an assignment dated 26 November 2015 and registered on 15 December 2015 (“2^nd Assignment”);

(6)  The Vendor and the Purchaser made a preliminary sale and purchase agreement dated 1 May 2019, which the Purchaser registered on 31 May 2019 (“PSPA”).

4.  Following the PSPA, as is usual in the course of vetting title, the Purchaser’s solicitors raised a number of requisitions.

5.  Two of the requisitions are now said to reveal 4 defects in the Vendor showing good title.  I will turn to discuss each of the alleged defects further below.

The Legal Principles

6.  The relevant legal principles are well established.  Counsel for the Purchaser, Ms Alison Choy, and Counsel for the Vendor, Mr Robert Chan, cite different passages from different cases which may sound more or less favourable to one side or the other.  This is credit to their diligence.  At core, however, they do not differ materially.

7.  A vendor has a duty to show good title.  A good title need not be a perfect title.  The issue is whether the purchaser would be at risk of a successful assertion against him of an adverse claim or encumbrance. This is to be assessed from the perspective of parties having robust commercial sense and willing to complete their transaction.  See: De Monsa Investment Ltd v While Win Management Fund Ltd (2013) 16 HKCFAR 419 at paras 107-110, 116-117, 122-127; Kingdom Miles Ltd v Ever Crystal Ltd [2019] 1 HKLRD 643 (CA) at paras 46-72.

Defect 1

8.  The 1^st Owner made the Declaration before her own solicitors, i.e., those acting for her in the 2^nd Assignment.  The Purchaser argues that this renders the Declaration invalid.  Therefore, the Vendor has produced no evidence as to loss of the original copy of the 1^st Assignment.

9.  Ms Choy relies on Hardy Kowara v Headwell Investments Ltd [1995] 2 HKLR 491 at 499(25) and 500(5) to contend that the Court has a discretion to exclude such a declaration from the evidence.  She also cites Law Society Circulars 90-45, 95-52, and 00-264 to the effect that making a declaration in that way is impermissible.

10.  In response to questions from the Court, Ms Choy accepts that the passages in Kowara which she relies on are obiter and have never been followed, applied or cited in any other case.

11.  A closer reading of Kowara reveals that the ratio of the case is in fact against Ms Choy.  The Court held at 499(11-12, 27-32) and made clear again at 500(5-6) that it could not exclude such a declaration.  At most it could take into account who administered the declaration when analyzing whether the declaration was reliable evidence.

12.  In the present case, there is no suggestion that the Declaration was falsely made.  Ms Choy says questions may arise about the 1^st Owner’s credibility.  That is the highest she puts it and can put it.

13.  The 1^st Owner declared that she had possessed the original of the 1^st Assignment, she had not pledged it, and she had lost it.  All this was clear and unequivocal.  It is also what is material.

14.  As for the Law Society Circulars, they express the Society’s views on whether a solicitor should administer a client’s declaration.  They do not speak to whether such a declaration is valid.

15.  In any event, for present purposes, as Mr Chan points out, the Declaration is only of secondary importance.  There are certified copies of the 1^st SPA and 1^st Assignment.  The parties are ad idem that the originals existed and the certified copies reflect the true contents of the originals.

16.  Thus, the significance of the absence of the originals lies not in any concern about the assignment.  It is also not about the circumstances of the loss.  In response to questions from the Court, Ms Choy narrows the possible concern to only that a third party may appear with the original       1^st Assignment and claim an equitable mortgage through possession.

17.  The risk of this occurring and leading to a successful assertion against the Purchaser is fanciful.

(1)  The risk is in effect the risk that the 1^st Owner outright lied and made a completely false statutory declaration.  There is no evidence to suggest this or even to raise any suspicion of this.  As I have noted above and will further discuss below, whatever issues may be raised about the Declaration, they do not affect what is material.

(2)  Ms Choy in her first supplemental submissions says that the concern is what if an equitable mortgagee turns up before completion of the present transaction and ahead of registration of the assignment.  But there would have been ways to address such a concern.  One could put the purchase money in escrow until registration.

(3)  Ms Choy in her second supplemental submissions goes further and says hypothetically the equitable mortgage could be purely oral and not registrable and not defeated for non-registration.    But in reality the 1^st Assignment was 10 years ago; the 2^nd Assignment was 5 years ago.  It is difficult to imagine any person would lend against the Property, with nothing in writing but only a deposit of the deed, and not come forward for such a long time.  See: De Monsa at para 119.

(4)  In any event, the Vendor’s legal title would defeat any such hypothetical equitable mortgage.  The Vendor was a bona fide purchaser for value.  It is not suggested that she had notice of any equitable mortgage.  The absence of the original 1^st Assignment may raise the thought of a hypothetical.  But the Declaration assured against it.  If an oral equitable mortgage ever emerges, it cannot be said that the Vendor had constructive notice.

(5)  The Purchaser will be in an even stronger position.  She is herself a bona fide purchaser for value.  She also has no notice of any hypothetical mortgage.  Moreover, for the reasons I explain herein, the issues raised about the Declaration cannot amount to any constructive notice.

18.  I find the Purchaser’s case on alleged defect 1 not made out.

Defect 2

19.  The 1^st Owner did not in the Declaration go into detail as to the circumstances of her receipt, safekeeping, and loss of the originals and her discovery of the loss.  The Purchaser says this renders the Declaration insufficient evidence to prove the loss beyond reasonable doubt.

20.  It is not clear from Ms Choy’s submissions why the standard of proof should be beyond reasonable doubt.  Moreover, it is not clear why giving details would help.  If, as is the possible narrow concern in this case, the 1^st Owner had given any of the originals to a third party for an equitable mortgage, then the Declaration would be a lie regardless of any details.

21.  Indeed, given what the possible concern is, for the reasons I have explained, even if there were defects in the details of the Declaration, they do not give rise to a risk of successful assertion against the Purchaser of an adverse claim or encumbrance.

22.  I find the Purchaser’s case on alleged defect 2 not made out.

Defect 3

23.  The Declaration contained a schedule of documents to which the 1^st Owner referred and which she declared to have possessed, kept, and lost.  The schedule appeared to have been compiled simply by copying and listing all the documents in the Land Register.  Many of the documents are of the type that the 1^st Owners could not have ever had the originals, eg, the land grant.  The Purchaser argues that this impugns the Declaration and renders it unreliable.

24.  The Declaration did not state expressly whether the 1^st Owner meant she had the originals or certified copies of those other documents.  By referring to the 1^st SPA and the 1^st Assignment together with the other documents, it may give an impression that the 1^st Owner meant she had the originals for all of them.  But common experience suggests otherwise.

25.  Had the 2 sets of solicitors acting in the 2^nd Assignment read the Declaration more closely, the present argument may have been avoided.

26.  In any event, for present purposes, the incorrect reference to the other documents does not realistically call into question the 1^st Owner’s core declaration that she had had, had kept, and had lost the original copies of the 1^st SPA and the 1^st Assignment.

27.  Moreover, given what the possible concern is, for the reasons I have already explained, even if there were problems with the schedule of documents in the Declaration, they do not give rise to a risk of successful assertion against the Purchaser of an adverse claim or encumbrance.

28.  I find the Purchaser’s case on alleged defect 3 not made out.

Defect 4

29.  The Declaration describes its subject property as:

“All Those 1,851 equal undivided 3,172,953^rd parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as YUEN LONG TOWN LOT NO. 504 And of and in the messuage erections and buildings thereon now known as “YOHO MIDTOWN” No. 9 Yuen Long Street, Yuen Long, New Territories, Hong Kong TOGETEHR with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT unit known as FLAT E on the 50^th Floor of TOWER M6 of the Development.”

30.  The last word “Development” was not defined.  The Purchaser argues that this renders it unclear what property the Declaration concerns, and the property may be other than the Property because there may be more than one Tower M6 at Yoho Midtown.

31.  Like for alleged defect 3, had the 2 sets of solicitors acting in the 2^nd Assignment read the Declaration more closely, the argument may have been avoided.

32.  In any event, the argument is entirely unrealistic. The context and the description make it amply clear what property the 1^st Owner owned, meant, and referred to in the Declaration.  To any extent necessary, one can simply read the term “Development” as an undefined term, and readily see the patently obvious meaning of the description.

33.  Furthermore, like for the other alleged defects, given what the possible concern is, for the reasons I have explained, even if there were an issue with the term “Development” in the Declaration, it does not give rise to a risk of successful assertion against the Purchaser of an adverse claim or encumbrance.

34.  I find the Purchaser’s case on alleged defect 4 not made out.

Conclusion and Costs

35.  It follows that the Plaintiff’s application is dismissed.

36.  I also make an order nisi that costs of this application be to the Defendant, to be taxed if not agreed, with certificate for counsel.

37.  I thank counsel for their well written submissions and for their prompt supplemental submissions in response to the Court’s questions.